Thousands of pensioners face shock hikes to their life insurance bills this year.

Huge increases in premiums are being posted to many of the 270,000 people who bought ‘whole-of-life’ cover a decade ago.

Thousands more who were sold policies in the early Nineties face a sudden rise because the cost of providing the insurance has jumped.

Whole-of-life policies are a type of insurance which pays a set lump sum to your relatives when you die.

Many of the 4.5 million policies in existence were flogged by financial advisers or insurance company salesmen. Policyholders were told that for a small premium of £10 a month, their loved ones would get around £10,000.

This monthly fee would be split between an insurance policy, which was guaranteed to pay out £10,000, and an investment fund, which they were told would eventually pay out far more. However, many were never told that premiums would soar when they were reviewed, typically after ten years or at the age of 65, and then every five years after that.

At 70, premiums are reviewed every year. For many, premiums have climbed from £10 to £50 and are now more than £100 a month — just to get the same sum assured.

Policyholders can’t even cash in the policy and get their premiums back, as the money they thought was in the fund has dwindled to nothing.

Nor can they refuse an increase in premiums, as this would cut in half the sum assured. It’s a desperate decision for policyholders: pay crippling increases in premiums, or give up on the policy and get nothing despite having paid thousands of pounds in premiums for more than a decade.

Robert Reid, an independent financial adviser at Syndaxi, says: ‘Don’t expect any excess cash — this type of policy was designed in the Seventies and in almost all cases is not fit for purpose.’

Whole-of-life policies are typically held by older people and many can ill-afford extra costs. Money Mail’s postbag is stuffed with letters from policyholders who feel they were led down a blind alley by salesmen. Around 200 people a month beg the Financial Ombudsman Service for help in battling insurers who deny any wrongdoing.

The insurer or adviser is found wrong in almost one in three cases.

Cheap monthly payments and lack of medical tests have been used as bait to sell policies since the Eighties. But some unscrupulous advisers failed to mention the potential for premiums to sky-rocket.

Years of sluggish stock market growth mean monthly premiums must increase to pay for the cover. In some cases, insurers misjudged how well the funds would perform, misleading customers.

Usually, they predicted the investment would grow by 6.25 per cent a year. As late as May this year, insurers were still predicting 5.5 per cent growth.

Patrick Connolly, a financial adviser at AWD Chase de Vere, says policyholders who get an unexpected letter should not panic. Ask yourself two simple questions: do I need life cover at all; if so, can I afford these added premiums?

He says most people are better off with modern ‘term assurance’ policies, which expire after a fixed period. ‘Don’t throw good money after bad — you may have paid in a lot of premiums, but that money is gone,’ he says. ‘There may be a more appropriate policy for you out there, and if you are looking to save money, you should look to Isas instead.’